The People’s Republic of China (PRC) has unveiled a digital Renminbi that will reportedly disrupt the cryptocurrency market if the regime decides to take on the crypto sector. Analysts believe that the latest move is part of a long-standing plan to undercut the crypto sector, as well as the global dominance of the US dollar.
The Chinese digital currency will be used to pay for transport, online shopping, and government services.
That said, one of the biggest talking points about the cryptocurrency right now is the amount of control that it gives the government and whether it will be used to undermine the crypto market. Through it, the Chinese administration will have absolute control of all funds circulating on the network. It also strips anonymity and enables the regime to track all payments made by a user. On the other hand, it is a superb way of detecting fraudulent transactions.
The War Against Crypto and the Tether Situation
The Chinese government has been working to seal loopholes that enable citizens to use cryptocurrencies to circumvent stringent money transfer rules and has already expunged crypto exchanges in order to achieve this.
It is, however, estimated that around $50 billion in capital flows out of the East Asian nation each year through cryptocurrencies. Tether is notoriously popular among investors looking to move large amounts of money out of the country. It accounts for approximately 18 percent of the $50 billion. This is according to statistics indicated in the Chainalysis 2020 East Asia report.
Presently, most of the Renminbi for Tether deals are executed via over-the-counter (OTC) markets. Such schemes will, however, become easier to foil going forward due to enhanced transaction monitoring on the digital Yuan network.
There are fears that the Chinese government will seek to ban the use of Tether and other stablecoins to curb capital outflows. Presently, demand for USDT is so high that some Asian exchanges are placing a 2 percent surcharge on its price.
The Digital Yuan is Unlikely to Affect Decentralized Coins
There are fears that China wants to wipe out other cryptocurrencies in order to enhance its own, but this scenario is unlikely because of the potential economic repercussions and the Chinese government is well aware of this.
It is also impossible to completely prohibit the trading of decentralized cryptocurrencies such as Tether because it is based on a decentralized blockchain. This means that the Chinese government wouldn’t be able to directly control its flow within the nation. As things stand, most Chinese crypto traders are able to access foreign exchanges via domain fronting and use of VPNs.
The other factor is that the digital Yuan is centralized and will most likely not be available on exchanges. As such, it won’t be able to compete directly with other stablecoins outside China, enough to adversely affect their demand.
Alternative reports indicate that the Chinese government is keener on countering the US dollar using the Renminbi cryptocurrency. This is because the American administration has in recent years weaponized the dominance of the US dollar by imposing restrictions on its use in embargoed nations. By allowing international partners to use its digital cryptocurrency, China will be able to circumvent monetary monitoring by countries such as the United States and sidestep restrictions placed on the SWIFT global money transfer network.
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